US ECON: Dec Consumer Spending Down 1.0%, Core PCE Unchanged...

Source: DailyFX.com

Consumer spending fell more than expected in December, by 1.0%, while the Fed's preferred measure of inflation was flat for the month and hit a five-year low 1.7% over the last 12 months. Consumer spending has now fallen for six straight months, the first such even since the Commerce Department began tracking the data in 1959.

For calendar year 2008, personal spending rose just 3.6%, the smallest gain since 1961. After adjusting for inflation, real consumer spending fell 0.5%, consistent with the observation in Friday's Q4 GDP report.

On top of December's 1.0% drop in consumer spending, Commerce today also revised November spending lower to a 0.8% decline, from the 0.4% decline it initially reported. Economists were expecting a 0.9% drop in December (IFR called it correctly at 1.0%).

Personal income fell 0.2%, better than the 0.4% decline economists were expecting. But Commerce revised November's decline in personal income to a 0.4% drop from the 0.2% drop it first reported. Disposable personal income fell 0.2% in December, but after adjusting for inflation and taxes, real disposable income rose 0.3%.

Inflation as measured by the core personal consumption expenditures (PCE) index, which excludes food and energy, was flat in December as expected. The core PCE index has been flat since October, though slightly negative for the last two months when taken out to three significant digits. The headline PCE price index fell 0.5%.

The core PCE "deflator" is up 1.7% over the last 12 months, just under the 1.9% gain expected. That's the lowest 12-month gain in core PCE since January 2004.

Private employers paid their workers $23.5 bln less in December than they did in November. Payrolls were down in all categories except the public sector, where government wage and salary disbursements rose $2.3 bln.

The personal savings rate for December was 3.6%, the highest since May 2008. The personal savings rate has been above 1.0% in seven of the last eight months, and has averaged about 2.5% over that period. We noted in our preview of today's data that a fundamental shift in consumer spending is underway that could take a decade to mature.